Compromise Agreement
Compromise Agreements
The number of claims made to the Employment Tribunal has grown significantly over the past decade.
These claims now number over 130,000 claims a year including over 40,000 unfair dismissal claims, 45,000 breach of contract/unpaid wages claims and some 20,000 discrimination claims.
Part of the difficulty for employers is that the Employment Tribunal is free to use (there are no court fees) and there is a general “no costs rule”. This means that employees have perceived that they have little to lose and much to gain from making an Employment Tribunal claim.
In response to the increasing risks of employment law litigation, there has been a very substantial growth in the use of compromise agreements.
A compromise agreement is a statutory form of legal contract by which an employee (or ex-employee) gives up the right to bring legal claims against their employer on the basis of financial payoff.
As stated above, compromise agreements are essentially statutory agreements. In order to be legally valid and binding they must comply with the statutory framework. The Government created compromise agreements in essence because the number of claims being made in the Employment Tribunal drains government resource, but because employment law is a political area, the government did not want to make employees pay court fees to use the Tribunal. Hence, it suits the Government for employers and employees to use compromise agreements to avoid Tribunal claims.
If you are interested in finding out more about use of a compromise agreement, we will advise you on :-
- The potential benefits and disadvantages
- The appropriate amount to offer
- Tax implications
- Confidentiality
- Possible post termination restrictive covenants